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You are here: BAILII >> Databases >> England and Wales High Court (Senior Courts Costs Office) Decisions >> Reeves v Frain & Ors [2025] EWHC 185 (SCCO) (31 January 2025) URL: https://www.bailii.org/ew/cases/EWHC/Costs/2025/185.html Cite as: [2025] EWHC 185 (SCCO) |
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SENIOR COURTS COSTS OFFICE
B e f o r e :
____________________
LOUISE MICHELLE REEVES |
Claimant |
|
- and - |
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SIMON KEVIN FRAIN (aka SIMON KEVIN REEVES aka BILL REEVES (2) MARK RYAN MCKINNON (4) |
Defendants |
____________________
Craig Ralph (instructed by LLP Solicitors) for the Second Defendant
Ben Quiney KC (instructed by LLP Solicitors) for the Fourth Defendant
Hearing dates: 6 and 7 November 2024
Draft circulated: 23 January 2025
____________________
Crown Copyright ©
Judge Brown:
The Defendants' DBAs
a. 'This is … a Damages-Based Agreement within the meaning of section 58AA of the Courts and Legal Services Act 1990 and the Damages-Based Agreements Regulations 2013'.
b. Clause 1 defines 'expenses' to include 'the cost of instructing … barristers'.
c. Clause 3.1: 'This agreement covers … Any claim brought or arising out of Claim Number PT-2019-000803 …'
d. Clause 8.2: 'You agree to be responsible for payment of the barrister's fees (as explained in Paragraph 9 below). We may ask you to provide payment in advance to cover the barrister's fees before any hearing at which they are instructed to represent you.'
e. Clause 9.1: 'You are responsible for paying expenses that are incurred on your behalf regardless of whether you win or lose.'
f. Clauses 9.2 and 9.2.5: 'Expenses typically include … Fees paid to a barrister. These may be for advice given in a conference, or for representing you at a hearing. If your case settles shortly before a hearing, and your barrister has already undertaken the preparation for that hearing, then you may still have to pay for part of their fee.'
g. Clause 10.1: 'If you win you agree to pay us [10% for the Second Defendant, or 24% for the Fourth Defendant] of any money and any non-monetary award or settlement received'.
h. Clause 11.1, under the heading 'What do you pay if the claim or proceedings are lost?': 'You will always have to pay disbursements which have been incurred, because you are always liable to pay disbursements.
The Defendants' alleged private retainers
'As you know, once the judgement was handed down, or work so far as the no win no fee (DBA) arrangement was concerned was complete. The "win" therefore means that our fees for this aspect have become due under the DBAs.
As discussed prior to the Judgment and immediately after hand down, any new work done since the hand down of the Judgment, ie the "win", is chargeable at our hourly rates of £500 per hour … for all work done in relation to the estate from point onwards going forward. As explained this could take some time to conclude in its entirety.
Going forward the amount of work required and therefore the fee payable with be significant it would seem, in the light of what we have seen thus far, such a HMRC issues and the undervaluation of properties….
As you are aware the issue of costs will be argued on 4 March as well who will be appointed as the PR of the estate. We are preparing the proposals that we have, along with the new PR's that we are proposing….
The statutory DBA regime ('the DBA rules')
The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses. These fears may be exaggerated; but, be that so or not, the law for centuries has declared champerty to be unlawful, and we cannot do otherwise than enforce the law, and I may observe that it has received statutory support, in the case of solicitors, in HYPERLINK "https://uk.westlaw.com/Document/IA8189932B2A111E3B229A64ECE6E6359/View/FullText.html?originationContext=document&transitionType=DocumentItem&ppcid=bbe1df1ab66f474d8708aaed1089be2b&contextData=(sc.DocLink)".
Until 1990 it was axiomatic that contingency fee agreements entered into by lawyers with their clients were illegal and contrary to public policy, because they gave lawyers an interest in the outcome of the litigation that could create conflicts between the lawyer's interests and those of their client. That axiomatic position was authoritatively restated by Buckley LJ in Wallersteiner v Moir (No. 2) [1975] 1 QB 373 at 401D–E.
Because one of the foundations for the public policy rule was the need to avoid conflicts of interest, what is prohibited at common law is not merely entering into an agreement tainted by maintenance or champerty but also acting in accordance with such an agreement. "If anything is against public policy it is the solicitor undertaking or continuing to act for a party in litigation in circumstances where the solicitor stands to gain more from the action if it is won than if it is lost.": see Awwad v Geraghty & Co [2001] QB 570, 594B–C per Schiemann LJ (emphasis added).
Any further modification of public policy in this area is for Parliament to establish and define: it is not for this court to attempt.
'a damages-based agreement is an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services which provides that—
(i) the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and
(ii) the amount of that payment is to be determined by reference to the amount of the financial benefit obtained.' (my underlining)
The agreement—
(a) must be in writing;
(aa) must not relate to proceedings which by virtue of section 58A (1) and (2) cannot be the subject of an enforceable conditional fee agreement or to proceedings of a description prescribed by the Lord Chancellor;
(b) if regulations so provide must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner;
(c) must comply with such other requirements as to its terms and conditions as are prescribed; and
(d) must be made only after the person providing services under the agreement has complied with such requirements (if any) as may be prescribed as to the provision of information.
'A damages-based agreement which satisfies the conditions in subsection (4) is not unenforceable by reason only of its being a damages-based agreement.
But … a damages-based agreement which does not satisfy those conditions is unenforceable.'
The requirements prescribed for the purposes of section 58AA(4)(c) of the Act are that the terms and conditions of a damages-based agreement must specify—
(a) the claim or proceedings or parts of them to which the agreement relates;
(b) the circumstances in which the representative's payment, expenses and costs, or part of them, are payable; and
(c) the reason for setting the amount of the payment at the level agreed, which, in an employment matter, shall include having regard to, where appropriate, whether the claim or proceedings is one of several similar claims or proceedings.
(1) '…a damages-based agreement must not require an amount to be paid by the client other than—
(a) the payment, net of—
(i) any costs (including fixed costs under Part 45 of the Civil Procedure Rules 1998); and
(ii) where relevant, any sum in respect of disbursements incurred by the representative in respect of counsel's fees,
that have been paid or are payable by another party to the proceedings by agreement or order; and
(b) any expenses incurred by the representative, net of any amount which has been paid or is payable by another party to the proceedings by agreement or order.'
'…a damages-based agreement must not provide for a payment above an amount which, including VAT, is equal to 50% of the sums ultimately recovered by the client.' (my underlining)
The Civil Procedure Rules: inter partes costs recovery where a party has entered into a DBA
(1) The fact that a party has entered into a damages-based agreement will not affect the making of any order for costs which otherwise would be made in favour of that party.
(2) Where costs are to be assessed in favour of a party who has entered into a damages-based agreement –
(a) the party's recoverable costs will be assessed in accordance with rule 44.3; and
(b) the party may not recover by way of costs more than the total amount payable by that party under the damages-based agreement for legal services provided under that agreement.
The issues
(1) a DBA may only provide for payment to the solicitors ('the Payment') out of sums recovered and, it is said, the DBAs in this case do not do so;
(2) the Payment to the solicitors under a valid DBA must include counsel's fees, which may not be charged as expenses, and in this case counsel's fees are charged an expense and in addition to the Payment; and,
(3) the Payment to the solicitors must be 'net of' any inter partes recovery of solicitors' costs and the DBAs do not provide for this.
General principles of statute interpretation
"… It may also (under the banner of loyalty to the will of Parliament) lead to the frustration of that will, because undue concentration on the minutiae of the enactment may lead the court to neglect the purpose which Parliament intended to achieve when it enacted the statute. Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment."
"The modern approach to statutory construction is to have regard to the purpose of a particular provision and interpret its language, so far as possible, in a way which best gives effect to that purpose. … In seeking the purpose of a statutory provision, the interpreter is not confined to a literal interpretation of the words, but must have regard to the context and scheme of the relevant Act as a whole… The essence of this approach is to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then to decide whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answered to the statutory description. Of course this does not mean that the courts have to put their reasoning into the straitjacket of first construing the statute in the abstract and then looking at the facts. It might be more convenient to analyse the facts and then ask whether they satisfy the requirements of the statute. But however one approaches the matter, the question is always whether the relevant provision of statute, on its true construction, applies to the facts as found".[2]
"(1) The court seeks to avoid a construction that produces an absurd result, since this is unlikely to have been intended by the legislature. Here, the courts give a very wide meaning to the concept of "absurdity", using it to include virtually any result which is impossible, unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief.
(2) The strength of the presumption against absurdity depends on the degree to which a particular construction produces an unreasonable result.
(3) The presumption may of course be displaced, as the ultimate objective is to ascertain the legislative intention."
The Statutory Objective
17 The statutory objective and the general principle
(1) The general objective of this Part is the development of legal services in England and Wales (and in particular the development of advocacy, litigation, conveyancing and probate services) by making provision for new or better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice.
"The parties drew our attention to two recent cases considering the application of section 58AA. They illustrate, in my view, the courts' awareness that provisions enacted to enable "new or better ways" for legal services to be provided should not be used either by the client to avoid paying their own lawyers for successful work done pursuant to the retainer or by the opponent to disrupt the proceedings and avoid the adverse costs consequences that normally follow from having fought and lost".
Materiality
"…The starting point must be the language of section 58(1) and (3) of the 1990 Act. It is clear and uncompromising: if one or more of the applicable conditions is not satisfied, then the CFA is unenforceable. (?) Could have adopted a different model. It could, for example, have provided that where an applicable condition is not satisfied, the CFA will only be enforceable with the permission of the court or upon such terms as the court thinks fit. There is nothing inherently improbable in a statutory scheme which provides that, if the applicable conditions are not satisfied, the CFA shall be unenforceable with the consequence that the solicitor will not be entitled to payment for his services. Such a scheme can yield harsh results in certain circumstances, especially if the client has not suffered any actual loss as a result of the breach. It can also produce results which, at first sight, may seem odd: see the point made by Mr Bacon mentioned at para 26 above. But the scheme is designed to protect clients and to encourage solicitors to comply with detailed statutory requirements which are clearly intended to achieve that purpose. The fact that it may produce harsh or surprising results in individual cases is not necessarily a good reason for construing the statutory provisions in such a way as will avoid such results.
….
In our view, this is the approach which should be adopted in relation to section 58(1) and (3) of the 1990 Act. To use the words of Lord Nicholls, Parliament was painting with a broad brush. It must be taken to have deliberately decided not to distinguish between cases of non-compliance which are innocent and those which are negligent or committed in bad faith, nor between those which cause prejudice (in the sense of actual loss) and those which do not. It would have been open to Parliament to distinguish between such cases, but it chose not to do so. The conditions stated in section 58(3)(c) and in particular the requirements prescribed in the 2000 Regulations are for the protection of solicitors' clients. Parliament considered that the need to safeguard the interests of clients was so important that it should be secured by providing that, if any of the conditions were not satisfied, the CFA would not be enforceable and the solicitor would not be paid. To use the words of Lord Nicholls again, this is an approach of punishing solicitors pour encourager les autres. Such a policy is tough, but it is not irrational. The public interest in protecting solicitors' clients required that the satisfaction of the statutory conditions was an essential prerequisite to the enforcement of CFAs. It is to be noted that in September 1999, the Lord Chancellor issued a consultation paper entitled Conditional Fees: Sharing the Risks of Litigation. The Law Society and the senior costs judge responded that the Law Society's new Client Care Code adequately covered the need to provide additional information about CFAs. But in the view of the Government, such was the need to ensure client protection that this response was not accepted.
The only mitigation of this strict approach is that, as was made clear in Hollins v Russell, the breach must be material in the sense described at para 107 of the judgment. Thus, literal but trivial and immaterial departures from the statutory requirements did not amount to a failure to satisfy the statutory conditions. It is unnecessary to decide whether the test stated at para 107 was no more than an application of the principle that the law is not concerned with very small things.
Severance
"The criteria that must be fulfilled before severance is possible are that:
(a) the offending provision can be removed without modifying or adding to other terms of the agreement;
(b) the remaining terms continue to be supported by adequate (?) and
(c) the removal of the unenforceable part of the contract does not change the nature of the contract, such that it is not the sort of contract that the parties entered into at all..."
62. Even if I were wrong in this conclusion, I would hold that severance is precluded as contrary to public policy. The principal effect of severance would be to permit partial enforcement of the unenforceable CFA. As was pointed out during submissions, if the client lost the arbitration, the effect of allowing severance would be that the solicitors would recover precisely the same amount of their fees as if the CFA had been held to be enforceable. That is not, in my view, a tolerable outcome. Nor is it any answer to submit that there is no disadvantage to the client in enforcing the discounted fee element in respect of work carried out for and at the client's request. The regime imposed by the 1990 Act is concerned with conflicts of interest giving rise to potential harm to clients: see Garrett per Dyson LJ at [38]–[39].
63. The effect of implementing public policy, as explained by Dyson LJ at [27]– [30] of Garrett, cited at [21] above, is that "if the applicable conditions are not satisfied, the CFA shall be unenforceable with the consequence that the solicitor will not be entitled to payment for his services".
64. Awwad, like the present case, involved a CFA of the type that has been described as a "discounted fee agreement". The solicitor in Awwad agreed to charge the client at her normal rate if the client won the litigation and at a lower rate (£90 per hour) if he lost. The agreement was not sanctioned by the 1990 Act. After acceptance of the opponent's Part 36 offer, the client declined to pay the solicitor's bill of costs. The Court of Appeal held that it was contrary to public policy for the solicitor to have acted in pursuance of a fee agreement that was not sanctioned by statute and that the agreement would not be enforced. The solicitors in Awwad, as in this case, submitted that there could be no objection to enforcing the agreement in respect of the discounted element of their fees that were to be payable in any event: see 574F. That argument too was rejected on grounds of public policy: see 594C–E per Schiemann LJ.
65. It would therefore be contrary both to principle and to authority to allow partial enforcement of the unenforceable CFA in the present case, on grounds of public policy. That precludes any residual arguments in favour of severance.
Issue 1: was the Payment out of sums recovered?
'"Payment" is defined in regulation 1(2) as "that part of the sum recovered in respect of the claim or damages awarded that the client agrees to pay the representative" (my emphasis). Regulation 4(1) prohibits a DBA from requiring an amount to be paid by the client other than the payment (as so defined) net of costs, disbursements or expenses recoverable from another party to the proceedings. Regulation 4(3) puts the matter beyond doubt by restricting the payment to a percentage of "the sums ultimately recovered by the client".
'The Regulations do not conflict with the statute but are entirely consistent with the concept that a DBA provides for payment to the representative to be made only from what is recovered by the client from the opposing party, and then only up to a prescribed percentage of the amount so recovered. That is the fundamental premise upon which the Regulations were enacted. In order to be enforceable, a DBA must not only fall within the statutory definition, but also satisfy the conditions in section 58AA (4), including the requirements of the Regulations. A DBA which provided for payment to be made when there is no financial recovery would not do so.
In my judgment, the language of the statute is clear. I accept that the draftsman chose to refer to the recipient of the services rather than to the claimant possibly to cater for the possibility that a DBA might be made in respect of what Mr Fulton described as an outgoing claim by a defendant, i e a counterclaim. I also accept that the phrase specified financial benefit is not confined to damages. Thus the expression damages-based agreement cannot be interpreted literally, as only applying to cases in which damages are paid (and not to debts or other forms of financial recovery). However, the word obtains envisages the litigant acquiring something that they do not already possess by necessary implication, from the opposing party. That language is not apposite to describe a situation in which the defendant retains money or other assets of value, or is not required to make a payment or transfer of assets to the opposing party, even if this is the consequence of successfully resisting a claim for debt or damages, or a claim to those assets. (my underlining)
-Is the departure material?
Severance
Default provisions?
Issue (2) - Counsel's fees charged as expenses on top of the Payment
(1) There is no requirement in the DBA rules that prevents counsels' fees being charged separately from the Payment and the provisions relied upon by Claimant do not have effect she contended for.
(2) In any event the arrangement in respect of payment of counsel's fees was to be considered as part of multiple or hybrid agreements only part of which was the DBA and this part remained valid as it was independent of the clauses concerning counsels' fees.
(3) Even if there were a departure from the 2013 Regulations was not a material breach.
(4) The DBAs can nevertheless be saved by severance.
Dealing with these contentions in turn:
(1) Whether charging counsels' fees separately from the Payment as an expense is permitted under the 2013 Regulation (other that in employment cases)
(2) Hybrid agreement?
Thus, the highest that it can be put by the appellant is that regulation 4(1) could be read as saying that a damages-based agreement must not require any amount to be paid by the client other than the payment itself, and expenses, whatever circumstances may eventuate. So, if the narrow view of a damages-based agreement is not accepted, then, on that literal reading, regulation 4(1) would, for example, prevent the legal representative from recovering any of its own costs, whatever the retainer actually said, even if the client terminated the agreement without cause after two years of work by the lawyer. That would not only be a commercial nonsense, but it would be contrary to the statutory purpose of section 58AA, which was designed to encourage the use of DBAs, not make them commercial suicide for the lawyer. It would also be contrary to regulation 3, contrary to the assumptions made about termination provisions to which I have already referred, and render regulation 8 redundant. I therefore reject that interpretation of regulation 4(1).
I recognise that this conclusion means that the current Regulations do not deal with a lawyers remuneration in the event that the client pursues a case to trial and loses. But that, in my judgment, is a matter that could be provided for in Regulations under section 58AA(4)(c). In other words, it could be a requirement of a DBA that it was part of an overall contract of retainer which either precluded (or limited) a lawyer from charging fees if the claim were lost.
3) Not a material departure?
In my judgment, Foster J was right to reject the solicitors' submissions based on Zuberi, essentially for the reasons that she gave. The starting point is the terms of s 58(2)(a), which I have set out above at [19] above. As I have already indicated, that definition of a CFA precludes splitting off the provisions for payment of the solicitor's discounted fees and treating them as not forming part of the (unenforceable) CFA. I accept the client's submission that the discounted fee provisions which the solicitors seek to enforce are part of the core agreement that make the September 2017 Agreement a CFA. Second, the provision for discounted fees is not analogous to the "termination" provision in Zuberi. Third, the considerations of public policy which supported Lewison LJ's narrow construction of the meaning of a DBA are absent in a case involving CFAs such as the present." ...My emphasis)
4) Severance
- The blue pencil test
-Would there still be consideration?
- Would the removal of the unenforceable part of the contract change the nature of the contract, such that it is not the sort of contract that the parties entered into at all
- Public policy objections, illegality
Conclusion on Issue 2
Issue 3: Was the 'payment' 'net of' any inter partes recovery of solicitor's costs?
Issue 4: were the DBAs wrongfully terminated by LLP?
Issue 5: whether there was a private retainer for work otherwise covered by the DBA from 16 January onward and, if so, does it give rise to a proper or reasonable claim for costs
Note 1 I understand that the Fourth Defendant was young and had a guardian signing on his behalf. Nothing, I am told, turns on this. [Back] Note 2 See too Zuberi v Lexlaw Ltd and The General Council of the Bar of England and Wales [2021] EWCA Civ 16 at [30] [Back] Note 3 See too, Silvera v Bray Walker Solicitors [2010] EWCA Civ 332, [2010] 4 Costs LR 584 and Stoop v Johnson [2024] EWHC 286 (Ch), [2024] Costs LR 983 which to my mind are consistent with the approach I have set out.
[Back] Note 4 See Beckett Investment Management Group Limited v Hall [2007] EWCA Civ 613 and Egon Zehnder Ltd v Tillman [2020] AC 154 [Back] Note 5 Cf perhaps issues of costs on the claim. [Back] Note 6 Whether Andrews LJ was also right to say that the payment must come from the other party to the litigation (a conclusion she reached by necessary implication) does not matter. [Back] Note 7 Essentially for same reasons that Court of Appeals rejected a quantum meruit argument in Diag |([67] –[69])). [Back] Note 8 See Herbert HH Law [2019] EWCA Civ 527 by way of contrast the position in respect of ATE insurance premium in respect of which the solicitor merely acts as agent. [Back] Note 9 8.— Terms and conditions of termination in an employment matter
(1) In an employment matter, the additional requirements prescribed for the purposes of section
58AA(4)(c) of the Act are that the terms and conditions of a damages-based agreement must be in
accordance with paragraphs (2), (3) and (4).
(2) If the agreement is terminated, the representatives may not charge the client more than the
representative's costs and expenses for the work undertaken in respect of the client's claim or
proceedings.
(3) The client may not terminate the agreement —
(a) after settlement has been agreed; or
(b) within seven days before the start of the tribunal hearing.
(4) The representative may not terminate the agreement and charge costs unless the client has
behaved or is behaving unreasonably.
(5) Paragraphs (3) and (4) are without prejudice to any right of either party under general law of
contract to terminate the agreement. [Back] Note 10 (see HYPERLINK "https://www.bailii.org/ew/cases/EWCA/Civ/2024/901.html" \t "_blank" [2024] EWCA Civ 901) [Back] Note 11 See Jones v Wrexham [2007] EWCA Civ 1356; St James v Wilkin Chapman LLP [2024] EWHC 1716 (KB) [Back]